AFP

After worrying drone reports and the “sabotage” of Nord Stream’s Baltic Sea pipelines, Europe’s biggest gas supplier Norway is beefing up security at its energy installations, which experts have singled out as vulnerable targets.

As spectacular as they may be, the gas leaks on the Nord Stream 1 and 2 pipelines linking Russia to Germany have no effect on Europe’s energy supply since they were not operational due to the war in Ukraine.

But a sabotage — the favoured theory among European leaders — of this type on Norwegian facilities would have a catastrophic impact on the continent, which is already struggling to meet its energy needs as winter approaches.

Norway has become Europe’s main gas supplier after Moscow cut deliveries in suspected retaliation against Western sanctions following its invasion of Ukraine.

The Scandinavian country has a vast network of pipelines linking it to the continent.

It is currently pumping at full capacity: according to official forecasts, its gas exports could set a record of 122 billion cubic metres this year.

That can be compared to the 150 billion cubic metres of gas per year that Russia supplied to the European Union before the war in Ukraine.

Faced with these stakes, Norwegian police announced Wednesday they were strengthening security measures already in place in the energy sector in a bid to reduce the risk of an attack.

“The situation is being taken very seriously and several measures have already been put in place to guarantee the best security possible”, police official Tone Vangen said in a statement.

She did not provide details, citing security reasons. 

On Tuesday, Petroleum and Energy Minister Terje Aasland made a similar announcement citing “reports of increased drone activity” near offshore oil platforms.

Norwegian energy giant Equinor has reported flights of “unidentified drones near certain installations”, a phenomenon not encountered before now.

“We are taking this very seriously and we have reported it to police,” Equinor spokesman Eskil Eriksen told AFP, providing no further details.

– Gas pipelines a weak link –

Echoing authorities, oil companies said they were taking extra precautions at their platforms, bases and land and sea installations.

Stretching over thousands of kilometres, sometimes at great depths, the oil and gas pipelines are a weak link in the energy supply chain that is so vital to Europe. 

“They are vulnerable, very exposed,” said Tor Ivar Strommen, a researcher at the Royal Norwegian Naval Academy.

He called for the introduction of additional security measures, including regular pipe inspections to ensure that explosives have not been placed there as well as closer monitoring of shipping near pipelines.

Prime Minister Jonas Gahr Store told Norwegian news agency NTB there was “no specific threat against Norway”.

But for professor and director of the Norwegian Institute for Defence Studies, Sven Holtsmark, it was “likely” that Moscow, often accused of using energy as a weapon, would try to sabotage Norwegian infrastructure.

“Before, the idea of Russia attacking Norwegian facilities would have seemed completely absurd, but we can no longer afford to exclude this possibility” in order to undermine European support for Ukraine, he told AFP.

“(Russian President) Vladimir Putin’s toolbox is running out and the war in Ukraine doesn’t seem to be going away any time soon. 

“So to me it makes sense for Putin to decide to sabotage Norwegian facilities, especially as it would be difficult to prove that Russia was behind it,” the expert added.

Global stock markets mostly sank Wednesday and the dollar soared as investors fretted over recession fears and heightened Ukraine tensions.

“With the prospect of a sharp economic slowdown, further pain for households and businesses, and investor sentiment on its knees, alas equities markets continue their descent,” said AJ Bell investment director Russ Mould.

The major Asian markets all closed down, and European stocks were down through afternoon trading.

The US was the exception, with markets edging up slightly at the open.

The British pound slumped 1.7 percent against the haven dollar — despite the Bank of England snapping up UK government bonds to try to bring calm to markets.

However, the UK government’s 30-year bond yield managed to retreat to 4.44 percent, having hit a 1998 peak at 5.14 percent.

The BoE intervention followed rare criticism Tuesday from the International Monetary Fund, which argued that Britain’s recent budget could increase inequality and worsen inflation.

Credit ratings agency Moody’s also waded in overnight with a warning about soaring debt.

New finance minister Kwasi Kwarteng’s tax-cutting plan last week sent shockwaves through markets, pushing the pound to a record low and leading to dire warnings for Britain’s economy.

“The BoE’s intervention is an attempt to soothe investor nerves after they were spooked by last week’s mini-budget,” said City Index analyst Fawad Razaqzada.

– Go-to dollar –

The dollar remains the go-to unit as the US Federal Reserve leads the way in raising interest rates.

Observers are betting that US borrowing costs will peak at around 4.75 percent next year, and are expected to remain elevated for some time.

The prospect of such tight monetary policy has battered equities, as US 10-year Treasury yields — a gauge of future rates — hit four percent for the first time since 2010.

“Fear of tightening-induced recessions has wiped out the recovery we saw in stock markets over the bulk of the summer as investors were once again burned by an over-eagerness to catch the bottom in the market, despite there being little evidence of it being justified,” said OANDA’s Craig Erlam.

“That fear has now gripped the markets and we may see a little more caution going forward,” he said.

Sentiment was also rattled by worries about developments in Ukraine, after Kremlin-installed authorities in four regions under Russian control claimed victory in annexation votes, with Moscow warning it could use nuclear weapons to defend the territories.

Ukraine and its allies have denounced the so-called referendums as a sham, saying the West would never recognise the results.

– Key figures at around 1345 GMT –

London – FTSE 100: DOWN 0.3 percent at 6,984.59 points

Frankfurt – DAX: DOWN 0.3 percent at 12104.37 

Paris – CAC 40: DOWN 0.5 percent at 5,728.16 

EURO STOXX 50: DOWN 0.4 percent at 3,315.49

New York – Dow: UP 0.2 percent at 29,193.25 

Tokyo – Nikkei 225: DOWN 1.5 percent at 26,173.98 (close)

Hong Kong – Hang Seng Index: DOWN 3.4 percent at 17,250.88 (close)

Shanghai – Composite: DOWN 1.6 percent at 3,045.07 (close)

Pound/dollar: DOWN at $1.0655 from $1.0730 on Tuesday

Euro/dollar: DOWN at $0.9587 from $0.9595

Euro/pound: UP at 90.67 pence from 89.39 pence 

Dollar/yen: DOWN at 144.43 yen from 144.81 yen

Brent North Sea crude: UP 0.1 percent at $85.67 per barrel

West Texas Intermediate: UP 1.0 percent at $79.46 per barrel

burs-rfj/rox/cdw

The Bank of England stepped in Wednesday to shore up market confidence after the International Monetary Fund criticised Britain’s inflation-fighting budget.

In a surprise move, the BoE announced it was temporarily buying up long-dated UK government bonds “to restore orderly market conditions”.

The pound promptly slumped 1.7 percent to $1.0552 before clawing back ground.

There was respite elsewhere, with the UK government’s 30-year bond yield retreating to 4.44 percent, having hit a 1998 peak at 5.14 percent.

The BoE intervention followed criticism Tuesday from the IMF, which argued that Britain’s budget could increase inequality and worsen inflation.

Credit ratings agency Moody’s also waded in overnight with a warning about soaring debt.

– ‘Finally intervenes’ –

“So, the Bank of England finally intervenes after coming under so much pressure to act,” said City Index analyst Fawad Razaqzada.

“The BoE’s intervention is an attempt to soothe investor nerves after they were spooked by last week’s mini-budget.”

Finance minister Kwasi Kwarteng’s big tax cuts and energy price freeze, aimed at boosting the UK’s recession-threatened economy, appeared to have had the opposite effect as traders warn of ballooning debt to pay for the incentives.

Following last Friday’s budget, UK bond yields soared and the pound hit a record low at $1.0350, perilously close to parity.

Critics added that Kwarteng’s measures would benefit the rich more than the poorest, as millions of Britons suffer from a cost-of-living crisis.

“We have acted at speed to protect households and businesses through this winter and the next, following the unprecedented energy price rise,” the Treasury said after the IMF criticism.

“We are focused on growing the economy to raise living standards for everyone,” it added, blaming sky-high oil, gas and electricity prices on Russia’s invasion of Ukraine.

– IMF advice –

In a highly unusual intervention, the IMF late Tuesday said it was “closely monitoring” developments and urged the government in London led by new Prime Minister Liz Truss to change tack.

The Fund added: “We understand that the sizable fiscal package announced aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures.

“However, given elevated inflation pressures in many countries… we do not recommend large and untargeted fiscal packages at this juncture.”

The IMF said the “UK measures will likely increase inequality” and stressed the importance of fiscal policy not working “at cross purposes to monetary policy”.

Analysts warned that Britain’s controversial measures could force the BoE to hike interest rates far higher than forecast.

“Expectations that there will be a super-size interest rate hike coming from the Bank of England to try and counter the government splurge on tax cuts and spending have increased,” Hargreaves Lansdown analyst Susannah Streeter noted Wednesday.

Many central banks, including the BoE, are aggressively hiking interest rates in a bid to cool decades-high inflation. 

The BoE on Wednesday warned there was a “material risk to UK financial stability” should current market conditions continue.

Purchases “will be carried out on whatever scale is necessary”, added the bank headed by governor Andrew Bailey.

– Tax cuts –

In his budget, Chancellor of the Exchequer Kwarteng cut the highest rate of income tax and scrapped a cap on banker bonuses.

He also, however, announced a plan to lower income tax for all workers.

Conservative party head Truss appointed Kwarteng to replace Rishi Sunak, who reached the final two in the race to be prime minister.

Sunak had hit out strongly at Truss’s promise of tax cuts, arguing that the UK priority was to first bring down the nation’s inflation rate that stands at a near 40-year high of 9.9 percent. 

Moody’s called Britain’s new fiscal policy regime “credit negative”, adding that a sustained confidence shock could “permanently” weaken its debt affordability.

Kwarteng has said he would wait until November 23 to outline plans on controlling government debt.